Macroeconomy

The road to the Chilean presidential election

Uncertainty about the country’s political orientation may continue to weigh on Chilean assets, which already carry significant discounts.

Julien Holtz, Pictet Wealth Management

The road to the Chilean presidential election

With a constitutional convention tasked with rewriting the country’s constitution, Chile has been experiencing an unusually high level of political volatility since 2019. Meanwhile, presidential, parliamentary and regional elections are being held later this year, with much at stake for Chile’s economic direction.

The victors in presidential primaries were the leftist Gabriel Boric and the centre-right candidate Sebastian Sichel. The defeat in these primaries of the communist candidate, Daniel Jadue, means that Chile should avoid a Peru-like scenario.

Nonetheless, Boric’s candidacy means there is a chance of a leftward shift in Chilean politics, with implications for industry and markets His programme involves bold measures that could reverse Chile’s long-standing liberal economic model in areas such as government spending, taxes and pensions.

The very low approval rate of the current president, Sebastian Piñera, combined with the independent slant of the constitutional convention and the strong participation in the presidential primaries all suggest that the elections in November will be challenging for the centre right.

Distrust in the current government was likely a significant driver of the right’s defeat in the election to the constitutional assembly in May, when the government coalition failed to secure the one-third of seats needed to veto articles of the new draft constitution (which may go to referendum in Q3 2022).

Overall, the elections in November will therefore likely to be a stiff challenge for economic liberals, adding to the overall climate of uncertainty caused by the constitutional debate. This could continue to weight on Chilean assets (equities, bonds and the currency, notably). This is despite a generally supportive economic backdrop that lifted copper price at historically high levels and would normally command much higher equity prices.

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